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Interception
Providence Fan
Member since Nov 2008
11089 posts

S-Corp Question

My family owns a business that has existed for a long time and was initially filed as an S-Corp. This business is about to lease out some office space for 3-4k a month. I know S-Corps are tax advantageous but is the S-Corp the best way to keep as much money as we possibly can?

In other words, if I want to spend the money on other things outside the business what's the best way to go about?

TIA

This post was edited on 3/20 at 12:01 am



schexyoung
LSU Fan
Deaf Valley
Member since May 2008
4661 posts
Online

re: S-Corp Question
Distribute earnings through dividends assuming you are a shareholder.


Interception
Providence Fan
Member since Nov 2008
11089 posts

re: S-Corp Question
Okay, why do you say that?

I thought capital gains just went up?


TheDirty1
LSU Fan
Member since May 2011
360 posts
Online

re: S-Corp Question
quote:

I thought capital gains just went up?


Even though capital gains went up about 5-7% it's still likely less of a tax burden than income tax. Depends on your tax bracket.


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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
17580 posts

re: S-Corp Question
quote:

Distribute earnings through dividends assuming you are a shareholder
S corporation distributions are not taxed as dividends to the shareholder unles the company operated as a C corporation and had undistributed earnings and profits. The OP wrote that the business has been an S corporation since inception, so it has no accumulated E&P to distribute. All of ht eS corporation income is taxable to the shareholders whether or not any dsitributions are made to the shareholders.

More information is necessary to determine how to minimize the tax consequences of $3,000-$4,000 of rental revenue per month to the shareholders.


Interception
Providence Fan
Member since Nov 2008
11089 posts

re: S-Corp Question
quote:

More information is necessary to determine how to minimize the tax consequences of $3,000-$4,000 of rental revenue per month to the shareholders


What info do you need? I'm all ears Poodlebrain



Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
17580 posts

re: S-Corp Question
quote:

What info do you need? I'm all ears Poodlebrain
Income and losses from rental real estate activities has all sorts of special rules. How those rules apply depends on several factors that go beyond the scope of a message board discussion. You need to sit down with a tax professional and review your prior years tax returns and current year information (both the S corporation and your individual) to determine the best approach to minimizing the tax consequences of revenue from rental real estate activities.



ShreveportTIGER318
Texas A&M Fan
Shreveport/Washington, D.C.
Member since Apr 2008
2788 posts

re: S-Corp Question
Assuming they have no E&P, there should not be any passive income consequences.

The character of the income to the S-Corp is "passed through" to the shareholders. Since this rental income is ordinary income, it will be ordinary income to the shareholders.

You may want to make damn sure there are minimum distribution requirements (i.e. shareholder agreement), otherwise, you could be allocated income with no cash to pay it.

If you don't understand the basics of subchapter S or subchapter K, it might be best to get in touch with an accountant to tax attorney.

You don't want to blow your S election unnecessarily (generally never at all).


Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
17580 posts

re: S-Corp Question
quote:

The character of the income to the S-Corp is "passed through" to the shareholders. Since this rental income is ordinary income, it will be ordinary income to the shareholders.
Rental real estate is by definition a passive activity unless there is material participation. There are separate line items on the Schedule K-1 for rental real estate and other rental activities. The reason is because rental real estate requires separate reporting via Form 8582, used to determine passive activity losses allowed.

As I said, businesses that have rental real estate activites incidental to another trade or business have complex reporting issues, and consulting with a tax professional is recommended.


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MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
1931 posts
Online

re: S-Corp Question
Write yourself a check from the business and call it a dividend. No soc sec or Medicare taxes paid.


LSUchuck
LSU Fan
Member since Dec 2004
1449 posts

re: S-Corp Question
S-Corps dont issue dividends!

Shareholders can take distributions which aren't subject to SE taxes but they must take a salary equal to what they would pay someone else to do the services they are performing.


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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
17580 posts

re: S-Corp Question
quote:

Write yourself a check from the business and call it a dividend. No soc sec or Medicare taxes paid.
And know that the IRS will contact you wanting to know what the hell you think you were doing.


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